Gold Market Update

Gold fell heavily today, and although it was a large one-day drop, it was
not unreasonable given the size of the decline in silver and the rally in the
dollar. Although gold was certainly overbought and pushing its normal overbought
limits it had not become as severely extended as silver had.

On the 6-month chart gold's recent strong rise looks modest compared to what
we have recently seen in silver. The rally towards the end of March and this
month had opened up a large gap with its moving averages, and it had risen
to push normal overbought limits in recent days, as can be seen from the RSI
and MACD indicators at the top and bottom of the chart. Even though it is now
reacting, this retreat is viewed as a healthy technical development that will
serve to partially unwind the overbought condition, and thus create further
upside potential. A positive effect of the strong rally of recent weeks is
that it has taken the price sufficiently far above the trading range beneath
$575, for this zone to provide strong support in the event of the price reacting
back that far, which is considered unlikely at this point.

On the 5-year chart we can see that gold has now moved into a higher gear,
so that the long-term trend channel it had remained in for several years is
now obsolete. Due to the outlook for the dollar, which we will come to shortly,
the steeper rate of advance is expected to continue. A period of consolidation
is now likely in the $600 area before progress resumes.

On the 1-year dollar chart we can see that the Precious Metals' about face
today synchronized with a dollar rally from important support in the 88 area
on the index. The dollar was short-term oversold so it was entitled to a brief
rally, however, the outlook for the dollar is grim indeed. On this 1-year chart
we can see that the dollar has been rounding over for about 9 months beneath
a zone of heavy resistance, forming a large Head-and-Shoulders top which it
looks set to break down from soon - and with the gap move below the "neckline" of
this pattern about a week ago, it can already be said to have done so. Gold
is expected to resume its advance once the limited support at the 88 level
fails, with the next support being at the 86 level.

On the 5-year dollar chart we can see the importance of the resistance level
in the 90.5 - 92.5 area that brought last years' rally to a dead stop and that
once the 86 level fails, the next major support comes in the 80 area, and when
that gives way, the dollar could go into freefall. The impending serious decline
in the dollar presaged by these charts will obviously fuel the ongoing bull
market in the Precious Metals and in anything else priced in dollars.

The above represents the opinion and analysis of Mr. Maund,
based on data available to him, at the time of writing. Mr. Maunds opinions
are his own, and are not a recommendation or an offer to buy or sell securities.
No responsibility can be accepted for losses that may result as a consequence
of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation
of any kind from any groups, individuals or corporations mentioned in his reports.
As trading and investing in any financial markets may involve serious risk
of loss, Mr. Maund recommends that you consult with a qualified investment
advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction
and do your own due diligence and research when making any kind of a transaction
with financial ramifications.